Blowing the whistle on drug firms

A tiny pharmacy in Florida has built a lucrative niche market: filing lawsuits against drug makers that overcharge Medicare and Medicaid.

By Andrew Zajac, Washington Bureau

January 24, 2011, 5:04 p.m.

Reporting from Washington —

Last December, a specialty pharmacy in Florida enjoyed its best month ever — posting a hefty $168.7 million in revenues.
But it wasn't filling prescriptions that made Ven-A-Care of the Florida Keys Inc. such a success.
Tiny Ven-A-Care has developed a lucrative niche market: blowing the whistle on drug companies that overcharge Medicare and Medicaid — and collecting tens of millions of dollars in reward money.
Unlike most whistle-blowers who help the government with one case after they encounter wrongdoing, Ven-A-Care has filed suits alleging fraudulent conduct against dozens of drug companies supplying pharmacies and healthcare providers.
The company's whistle-blowing essentially works like this:
The company conducts research, comparing the prices it paid for drugs with the prices reported by drug makers to the government for reimbursement. Ven-A-Care files suit, on behalf of the government, when it spots large discrepancies between the two sets of prices.
The spreads can be dramatic.
A 2005 California suit alleged that a 1-gram vial of the antibiotic vancomycin was sold to providers for $6.29, but billed to Medi-Cal for $58.37, while 50-milligram tablets of the blood pressure medication atenolol were billed to pharmacies at $3.04 and to Medi-Cal at $70.30.
"I think Ven-A-Care has played a key role and possibly the predominant role in alerting state and federal governments about … fraud," said Nicholas Paul, a supervising deputy attorney general for the state of California, which filed the 2005 suit against 39 drug companies based on Ven-A-Care allegations. It has so far recovered about $95 million.
Joined frequently by the Justice Department or a state, the suits have yielded a string of handsome returns to Ven-A-Care and even more to state and federal governments.
Since 2000, the company has won settlements in at least 18 such suits. Three settlements announced last month brought the fees awarded the company and its attorneys since 2000 to more than $380 million.
State and federal governments, meanwhile, have collected about $2.2 billion from those cases. They have also changed reimbursement practices in an effort to make it harder for healthcare providers to reap windfall profits from drugs.
Both in recoveries for themselves and for taxpayers, Ven-A-Care's partners are apparently the most successful whistle-blowers in U.S. history.
"They're cleaning up a huge cesspool. Without their efforts, taxpayers would be gouged out of I don't know how much money," said L. Timothy Terry, an attorney and one-time Nevada state Medicaid fraud investigator who now represents whistle-blowers.
The Obama administration has made combating healthcare fraud a priority, encouraging whistle-blowers to come forward and opening a record number of new healthcare fraud cases. In 2010, federal prosecutors collected a record $2.5 billion via claims initiated by whistle-blowers, according to an announcement Monday by the Department of Health and Human Services.
Ven-A-Care is not without its detractors. Some complain that their awards are too large.
"We're spending tens of millions of dollars as a reward for information. The question is, 'Is it necessary?' " said Michael Loucks, formerly an influential healthcare fraud federal prosecutor in Boston who oversaw numerous multimillion-dollar, whistleblower-inspired settlements with drug companies.
Loucks, now a defense attorney, said whistle-blower payments should be capped at $2 million. "Somebody will still blow the whistle," he said.
Ven-A-Care attorney Jim Breen said large settlements were necessary to cover the expenses of mounting suits.
"If we're capped, we could never do what we've done — we couldn't return that amount of money to the government," he said. "In my average case, I probably have at least two major law firms, plus local counsel, opposing me. Cases like this require you to marshal millions of dollars."
Ven-A-Care's whistle-blower suits came after years of complaints the company made to lawmakers and healthcare bureaucrats about overpayments by Medicare and Medicaid connected to inflation of the average wholesale price, or AWP. This price was a benchmark used as the basis for reimbursement by the government insurance programs for the poor and elderly.
Ven-A-Care argues that drug companies have charged doctors, pharmacies and other providers a much lower price for drugs and allowed them to keep the spread between that price and a government reimbursement based on inflated AWPs, as a means of building the drug firms' market share.
"It destroys the price advantage of generic drugs," said Pat O'Connell, a whistle-blowers' attorney in Austin, Texas.
Ven-A-Care was created 23 years ago when a young Florida pharmacist named Luis Cobo and a nurse named T. Mark Jones went into the business of supplying intravenous drugs for AIDS and cancer patients.
Ven-A-Care's allies note that, until this month, no one had taken a case triggered by a Ven-A-Care complaint to trial. The trial of a state of Texas suit based on a Ven-A-Care filing, against Icelandic pharmaceutical firm Actavis, began Jan. 10 in Austin.
Cobo, Jones and two other Ven-A-Care partners involved in the suits did not return messages seeking comment.
Ven-A-Care's critics say federal participation is an unfair advantage because it can trigger a criminal investigation and an eventual conviction, which can lead to banishment from the Medicare and Medicaid programs.
Drug firms have also tried to derail Ven-A-Care suits by arguing that the company functions as a professional whistle-blower rather than a pharmacy and thus lacks the firsthand knowledge of fraud required by law.
Abbott Laboratories, for example, asked a judge to throw out what it called a "parasitic" Ven-A-Care case because "Ven-A-Care's officers candidly admit that they learned of Abbott's alleged 'fraud' by researching … catalogs and other publications that were equally available to thousands of other pharmacies."
But a judge declined to dismiss the case, and on Dec. 7, the Justice Department announced that Abbott had agreed to pay $126.5 million to settle Ven-A-Care complaints.
Attorney O'Connell acknowledged that whistle-blowing can have a mercenary aspect.
"It's a bounty hunting system. There's no reason to sugarcoat it," he said.
The firm's partners came to whistle-blowing reluctantly, associates say.
Disturbed by the price spreads, Ven-A-Care's office manager at the time, Zachary Bentley, once tried unsuccessfully to return a federal check that he thought was too big.
In one case, he found his firm was being charged only $49 per unit for a nutritional supplement when the government was reimbursing $428 per unit. Some years before, Bentley recalled, the Pentagon had been under fire for paying exorbitant prices for toilet seats on airplanes.
Hoping to awaken federal officials to the wasteful spending, Bentley bought a toilet seat and mailed it to Washington.